Crypto Deleveraging Cycle ‘Won’t Last Much Longer’

JPMorgan says metrics based on futures suggest the current cycle is already well advanced

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  • Crypto entities with strong balance sheets are stepping in to contain contagion, strategists say
  • The bank points to continued strong VC investment as a sign the shakeout will be short lived

Banking giant JPMorgan expects the current debt-related mayhem in the digital asset markets to come to an end soon. 

“Crypto entities with the stronger balance sheets are currently stepping in to help contain contagion,” a report by the firm’s strategists said. Funding from venture capitalists has also endured the turmoil and continued at a healthy pace in May and June, according to the report.

Entities that had higher leverage were ultimately the most vulnerable in the bear market, the strategists wrote. This included bitcoin miners who had “borrowed to expand operations using their bitcoin as collateral,” hedge funds that used “futures to lever their positions,” and retail investors who borrowed “via margin accounts to invest into various cryptocurrencies.”

Among the deep-pocketed crypto firms stepping in to stem the damage is cryptocurrency exchange FTX, which is pulling together a deal to buy beleaguered digital assets lender BlockFi, according to reports in Blockworks and other publications.

Venture capital firms also seem to be pressing ahead with crypto investments. ​​Andreessen Horowitz broke records last month when it raised a $4.5 billion fund dedicated to crypto, and OP Crypto has reportedly just raised $100 million for early-stage crypto investments. 

Although it is difficult to assess how much more deleveraging needs to still happen, strategists from JPMorgan said, “indicators like our Net Leverage metric based on CME futures suggest that this deleveraging is already well advanced.”


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